Thoughts on liability and challenges

As tankers grew in size, so did the need for ever-higher limits to ensure adequate compensation would be available for pollution victims

By Birgit Sølling Olsen

Every year the winner of IMO’s prestigious International Maritime

Prize is invited to submit a paper on a subject of his or her choice for publication in IMO News. Here, 2017 winner Mrs. Birgit Sølling Olsen, former Deputy Director-General of the Danish Maritime Authority, shares her views on liability and associated challenges. The views expressed are those of the author and do not represent IMO position or policy.

IMO Member States realized at an early stage that IMO, as the focal point for international regulations, should develop legislation to ensure safe ships, clean oceans and world trade. Focus has been on improving the technical standards for ships in international trade but also on issues such as liability for damages caused by ships. After the oil spill caused by the tanker TORREY CANYON in 1967 the IMO developed not only the MARPOL convention regulating standards for tankers, but also liability conventions with the aim of ensuring compensation for victims of oil pollution. IMO has now developed a number of liability conventions covering different types of damages. The focus here is on the oldest, the International Convention on Civil Liability for Oil Pollution Damage (CLC) and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (FUND) as well as the newest, the Wreck Removal Convention (WRC).

The CLC was adopted in 1969. It introduced new legal obligations which changed the concept of liability. Shipowners had to accept a new international legal framework with strict liability for oil pollution caused by persistent oil transported in bulk as cargo, the channeling of liability to the shipowner, mandatory insurance with a right for the third party to demand payments directly from the shipowner’s insurance company without any consent or acceptance of the responsibility for the damage by the shipowner. The changes also included demolishing the “pay to be paid” principle which protected the insurance company from paying claimants in cases where the shipowner was insolvent or had not paid the insurance premium. The 2-tier liability system was introduced by establishing a liability fund paid by the receivers of oil who benefitted from the free movement of persistent oil by sea. The aim was to ensure adequate compensation by supplementing the 1969 CLC by the 1971 Fund convention, which entered into force in 1978. The purpose of the Fund was to provide compensation to victims when the damages exceeded the shipowner’s liability limits. The two conventions supplemented each other and established one of the most successful international liability and compensation systems.

Higher limits needed

As time passed the tankers and their cargo increased in size and volume and could cause more damages and a need emerged to ensure even higher limits to compensate for damages. The 1971 Fund convention was followed by the 1992 Fund convention and the 1969 CLC by the 1992 CLC. The two new conventions maintained the basic legal principles of the compensation and liability system. The 1971 Oil Pollution Fund Convention ceased to be in force in 2002 and was dissolved in 2014. States are now encouraged to leave the 1969 CLC convention to obtain a better protection for damages by joining the 1992 CLC and the 1992 Fund convention. This liability and compensation system has contributed to the success of IMO in line with the SOLAS convention and the MARPOL convention. Today 116 States are Party to the 1992 Fund Convention and the Fund system (1971 and 1992 Funds) have successfully dealt with more than 150 incidents.

Regardless of the widespread participation and support and the well-functioning of the system there are challenges and risks of disruption. The major challenge that the oil compensation system